National Pension Scheme for Traders & Self-Employed Persons | UPSC Notes

The National Pension Scheme for Traders and Self-Employed Persons is a scheme initiated by the Indian Government in the form of pension benefits to small-time traders and self-employed people, most of whom have no formal retirement savings mechanism. The scheme comes under the larger umbrella of the Social Security Code that aims at providing financial security and a better standard of living in old age for unorganised sectorial members. One of the important steps towards growth in an inclusive manner lies herein, wherein the informal sector workers can also enjoy a pension system.

National Pension Scheme for Traders and Self-Employed Persons is a subject under General Studies Paper II of the UPSC Civil Services Examination. It falls under the subject category of Governance, Constitution, Polity, Social Justice, and International relations. The topic is particularly important to understand the initiatives by the government regarding social security and welfare, especially for the unorganized sector, which forms a huge chunk of India's workforce.

About the National Pension Scheme for Traders and Self-Employed Persons

The National Pension Scheme for Traders and Self-Employed Persons is a social security plan introduced by the Government of India to provide old-age protection and financial security to India's large segment of small traders and self-employed individuals who have traditionally been excluded from formal pension schemes. The scheme targets subscribers between 18 years and 40 years with annual turnover not exceeding INR 1.5 crore. A minimum assured pension will be provided to the subscriber on attaining the age of 60 years. The government will double the beneficiary's contribution at the end. This project aims to instill a saving culture in this vulnerable section of society, ensuring them a proper cover for the later years of life.

Background

A large chunk of workers in India are classified as working in the unorganized sector—small-scale trading, shopkeepers, and other self-employed sectors. They are not covered under formal pension schemes. Being aware of this lacuna, the Government of India introduced the National Pension Scheme for Traders and Self-Employed Persons in September 2019. Released by the Ministry of Labour and Employment, this scheme covers around 3 crore small traders and self-employed persons who are a significant part of the market economy but are highly vulnerable in their advanced old age due to the absence of a social security net.

Read the article on the National Pension Scheme (NPS)!

Objectives of the National Pension Scheme for Traders and Self-Employed Persons

The objectives of the scheme include offering old-age protection and building economic security for small-scale operators along with the self-employed, besides creating a saving culture that will help prevent economic insecurity during their advanced age. The scheme aims to include more members of the informal sector into the social protection system and ensure a sure source of income during old age.

Key Features of the National Pension Scheme for Traders and Self-Employed Persons

The scheme has several features that enable ease and comprehensive coverage:

• Simple Enrolment: All arrangements have been made through Common Service Centres or online at the official portal after self-certification only.
• Contribution Matching: The government matches the contributions made by the subscriber and adjusts the same within specified limits so that the benefit is doubled while sharing the savings burden.
• Auto Debit Facility: Contributions are auto-debited from the subscriber's bank account for ease of operation and on a regular contribution basis.
• Age Limit: Persons between ages 18 and 40 years can subscribe for it with the objective of contributing over a long working period.
• Guaranteed Pension: After attaining 60 years of age, the subscriber receives at least a guaranteed pension of INR 3,000 every month with a steady income on retirement.
• Family Pension: After the death of the subscriber, the spouse is eligible to receive half of the pension as a family pension; hence it continues even after the subscriber's death.

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Eligibility for the National Pension Scheme for Traders and Self-Employed Persons

The eligibility criteria are articulated to capture the specific beneficiary and exclude those who are already covered through other schemes or earn above specific economic thresholds:

• Age Criteria: The age to be enlisted is between 18 and 40 years.
• Income Criteria: The business should have an annual turnover of up to INR 1.5 crore.
• Declaration: A declaration by the individual would be needed for accepting registration to prove that the individual is not covered under the EPFO/ESIC/NPS (Government)/PM-SYM or an income tax assessee.
• Exclusions: Persons covered under any other pension scheme of the government and income-tax assessees are not eligible.

Read the article on the Social Security Agreements!

Benefits of the National Pension Scheme for Traders and Self-Employed Persons

The scheme offers many benefits to its subscribers, from which they could look forward to attaining financial security during their post-retirement years:

• Old Age Financial Security: The scheme provides for a minimum pension that ensures income stability.
• Government Contribution: The amount is matched by the government, thus one's own contribution is multiplied exactly twice.
• Ease of Enrollment and Maintenance: A simple and hassle-free enrollment process through CSCs and online portals.
• Pension to the Family: A source of financial support to the family in case the subscriber dies.
• Social Inclusion: Most of the self-employed and small traders fall into a formalized pensionary system, hence promoting inclusive growth.

Read the article on the Code on Social Security, 2020!

Challenges Associated with the National Pension Scheme for Traders and Self-Employed Persons

Despite these many merits, there are several drawbacks that may actually work against the overall scheme:

• Awareness and Outreach: In most cases, eligible persons are not aware of this scheme, thus curbing its reach and effectiveness.
• Financial Literacy: Proper enrollment and utilization are hindered by the lack of financial literacy in the target group.
• Administrative Hurdles: Ensuring regular contributions amidst the informal nature of their income can be challenging.
• Distrust: Fear regarding the genuineness of government schemes and their long-run sustainability hampers utilization.
• Ground Implementation: It differs in different regions, demanding varied efforts to apply the scheme, which causes unequal benefits.

Read the article on Social Welfare!

Conclusion

The National Pension Scheme for Traders and Self-Employed Persons stands as a pivotal step towards securing the financial future of a significant portion of India's informal workforce. With its high benefit promises and valiant effort at closing the social security gap for small traders and the self-employed, the scheme's success depends heavily on effective implementation, public awareness, and sustained government action to address arising challenges. Ultimately, it marks a move towards a more inclusive and equitable social security system in India.

We hope your doubts regarding the topic have been addressed after going through the above article. Testbook offers good quality preparation material for different competitive examinations. Succeed in your UPSC IAS exam preparations by downloading the Testbook App here!